Chongqing Grain Group Co., Ltd. (CGG), one of the leading state-owned grain companies in China, plans to invest USD1.2 billion to build grain production bases in Argentinathis year, for the planting of soybean, corn, cotton, etc., reported by Xinhua News, the official press agency of Chinese government, according to CCM’s March issue ofAgriChina Investor.

Facing strong demand for oversea soybean, corn, cotton, etc.,Chongqinggovernment believes it is a good chance to invest in agricultural business in oversea countries. According to an official from Chongqing Foreign Trade and Economic Relations Commission, in 2012,Chongqingplans to invest USD6 billion to develop agricultural business in oversea countries such asArgentina,Brazil,Canada, etc. Among the total, CGG’s USD1.2 billion investment will be the most important one this year.

After the completion of the investment, the purchase cost of soybean will be 20% lower when purchasing from producers rather than large international grain dealers. Besides, CGG can get more control over the price of soybean from oversea market.

Latest news said that CGG has registered a company inArgentinawith the registered capital of USD10 million. The first-phase investment will hit USD99.89 million. Besides the investment inArgentina, CGG also plans to develop canola business inCanadaandAustralia, rice business inCambodiaand palm oil business inMalaysia.

In fact, this is not the first time for CGG to develop agricultural business in oversea countries. The company has built a soybean production base inBrazillast year and imported the first batch of soybean (0.26 million tonnes) from its oversea soybean production base in Sept. 2011.

“Under the guidance of the government, we plan to build a comprehensive industrial chain: build oversea production bases; offer financial support and services; offer storage and logistics support; provide agricultural production means and then distribute the products to domestic market.” said Mr. Hu, President of CGG.

CGG plans to import 10 million tonnes of soybean from its oversea production bases, which will not only meet the demand inChongqingCity, but also can be marketed to surrounding areas. Besides direct import of soybean fromBrazil, CGG also plans to build some soybean processing factories in the country, which is welcomed by theBrazilgovernment.

Besides CGG, some other companies, such as Zhejiang Fudi Agriculture Group and Julong Group have also invested to build crop planting bases in oversea countries.

Other big state-owned companies are also planning to develop agricultural business in oversea countries, including Chinatex Corp Ltd.,China’s largest cotton trader, and COFCO,China’s largest grains and edible oil trader. COFCO reveals that it plans to invest USD10 billion in oversea mergers and acquisitions in agricultural industry in the coming years.

It is very easy to understand companies’ objectives to invest in oversea countries, under the background of strong demand and limited farmland.Chinais the biggest soybean importer in the world, but domestic soybean importers have to import soybean from large international grain dealers. Domestic companies hope the purchase cost can be reduced with the building of oversea production bases. However, some insiders think it will be hard to achieve the objective. First, the cost in building production bases in oversea countries is very huge, especially by purchasing farmland. Besides, the purchase of farmland has to face restriction by oversea countries. Last but not the least, they have to face fierce competition from large international grain dealers who are masters for both actuals and futures in agricultural products.

AgriChina Investor, periodically published on 25th every month, offers timely update and close follow up of agriculture investment inChina, analyzing market data and trends, as well as related policies. Major columns include investment environment, investment dynamics, market watcher, market review etc.

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